Registration document 2007 - Total.com

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flows with the zero coupon interest rate curves existing at
year-end;
• other financial instruments: the fair value of the interest rate
swaps and of FRA (Forward Right Agreement) are calculated
by discounting future cash flows on the basis of the zero
coupon interest rate curves existing at year-end after
adjustment for interest accrued yet unpaid.
Forward exchange contracts and currency swaps are valued on
the basis of a comparison of the forward rates negotiated with
the rates in effect on the financial markets at year-end for similar
maturities.
Exchange options are valued based on the Garman-Kohlhagen
model including market quotations at year-end.
N. Inventories
Inventories are valued in the consolidated financial statements at
the lower of historical cost and market value. Costs for petroleum
and petrochemical products are determined according to the
FIFO (First-In, First-Out) method and those of other inventories
using the weighted-average cost method.
Downstream (Refining – Marketing)
Petroleum product inventories are mainly comprised of crude oil
and refined products. Refined products principally consist of
gasoline, kerosene, diesel, fuel and heating oil and are produced
by the Group’s refineries. The turnover of petroleum products
does not exceed two months on average.
Crude oil costs include raw material and receipt costs. Refining
costs principally include the crude oil costs, production costs
(energy, labor, depreciation of producing assets) and allocation of
production overhead (taxes, maintenance, insurance, etc.). Startup
costs and general administrative costs are excluded from the
cost price of refined products.
Chemicals
Costs of chemical products inventories consist of raw material
costs, direct labor costs and an allocation of production
overhead. Start-up costs and general administrative costs are
excluded from the cost of inventories of chemicals products.
O. Treasury shares
Treasury shares of the parent company held by its subsidiaries or
itself, are deducted from consolidated shareholders’ equity. Gains
or losses on sales of treasury shares are excluded from the
determination of net income and are recognized in shareholders’
equity.
P. Other non-current liabilities
Non-current liabilities comprise liabilities for which the amount
and the timing are uncertain. They arise from environmental risks,
legal and tax risks, litigation and other risks.
178
Appendix 1 – Consolidated financial statements
Notes to the consolidated financial statement
TOTAL – Registration Document 2006
A provision is recognized when the Group has a present
obligation (legal or constructive) as a result of a past event for
which it is probable that an outflow of resources will be required
and when a reliable estimate can be made of the amount of the
obligation. The amount of the liability corresponds to the best
possible estimate.
Q. Asset retirement obligations
Asset retirement obligations, which result from a legal or
constructive obligation, are recognized on the basis of a
reasonable estimate of their fair value in the period in which the
obligation arises.
The associated asset retirement costs are capitalized as part of
the carrying amount of the long-lived assets and depreciated
over the useful life of the associated long-lived asset.
An entity is required to measure changes in the liability for an
asset retirement obligation due to the passage of time (accretion)
by applying a discount rate that reflects the time value of money
to the amount of the liability at the beginning of the period. The
increase of the provision due to the passage of time is
recognized as “Other financial expense”.
R. Employee benefits
In accordance with the laws and practices of each country, the
Group participates in employee benefit plans offering retirement,
death and disability, healthcare and special termination benefits.
These plans provide benefits based on various factors such as
length of service, salaries, and contributions made to the
governmental bodies responsible for the payment of benefits.
These plans can be either defined contribution or defined benefit
pension plans and may be entirely or partially funded with
investments made in various non-Group instruments such as
mutual funds, insurance contracts, and others.
For defined contribution plans, expenses correspond to the
contributions paid.
Defined benefit obligations are determined according to the
Projected Unit Method. Actuarial gains and losses may arise from
differences between actuarial valuation and projected
commitments (depending on new calculations or assumptions)
and between projected and actual return of plan assets.
The Group applies the corridor method to amortize its actuarial
gains and losses. This method amortizes the net cumulative
actuarial gains and losses that exceed 10% of the greater of the
present value of the defined benefit obligation and the fair value
of plan assets, over the average expected remaining working
lives of the employees participating in the plan.
In case of a change in or creation of a plan, the vested portion of
the cost of past services is recorded immediately in the income
statement, and the unvested past service cost is amortized over
the vesting period.